What is an Insurable Interest in Life Insurance?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

What is Insurable Interest in Life Insurance?

Insurable interest in life insurance refers to a policyholder’s legal or financial interest in the life of the insured. This interest must exist at the time of policy purchase. Essentially, the policyholder must suffer a genuine loss or hardship if the insured person dies.

Examples of Insurable Interest

  1. Family Relationships: A husband or wife has an insurable interest in their spouse. Parents can insure their children, and vice versa.
  2. Business Partnerships: A business partner has an insurable interest in their co-partner, as their death could financially impact the business.
  3. Debts and Obligations: Creditors can have an insurable interest in debtors to the extent of the debt.
Insurable Interest In Life Insurance

Why is Insurable Interest Required?

Insurable interest is required to:

  • Prevent insurance from becoming a gambling contract.
  • Ensure that the policyholder has a legitimate reason for the coverage.
  • Reduce the potential for moral hazard, where a policyholder might be incentivized to harm the insured.

Legal Requirements for Insurable Interest

The requirement varies by jurisdiction but generally includes:

  • Blood relationships, marriage, or close emotional bonds.
  • Financial dependence or obligations.
  • Business partnerships or significant economic ties.
Interest In Insurance

Common Scenarios for Insurable Interest

RelationshipType of Insurable InterestExample Scenario
SpouseEmotional and FinancialCovering mortgage obligations
Business PartnerFinancialProtecting business continuity
Creditor-DebtorFinancialSecuring loan repayment


Understanding insurable interest in life insurance is crucial as it forms the legal basis for a policy. It ensures that life insurance serves its purpose as a protection tool rather than a financial gamble. Remember, the presence of insurable interest is what legitimizes a life insurance contract. Contact us today for a free quote.

Need Help Getting Life Insurance Coverage?

Now that you know a little more about insurable interest, we hope that you will be able to make informed decisions about the types of insurance policies that are right for you! Feel free to contact us if you need help purchasing a life insurance policy. The service is free of charge.

Life Insurance Inquiry

Frequently Asked Questions

What is insurance interest?

Insurance interest is a form of investment that protects against financial loss. When the loss or damage of an object would result in a financial loss or other difficulties, a person or entity has an insurable interest in it.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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